Economics 2 Flashcards
(43 cards)
How does a bank work?
Banks work by paying its customers to make deposits. The depositing customer gains a small amount of money in return (interest on savings), and the lending customer pays a larger amount of money to the bank in return (interest on loans). To make money for itself, the bank keeps the difference.
Why do banks make loans?
Banks make a loan (lend money) and the borrower must pay back the money they loaned plus interest. The interest is part of how the bank makes money.
How do banks make money?
Banks charge higher interest to the borrower than they payout to the depositor.
How does a bank get money?
People deposit money in the bank, and are paid interest for leaving the money there. (The money is safe too!)
How do banks use money?
Banks use your money & the money of others (deposits) to make loans.
What is a deposit?
money put into a bank
What is a withdrawal?
money taken out of a bank
What is interest?
Money paid for the use of someone else’s money
What is a checking account?
the type of banking account that allows people to deposit money and use that money by writing a check (check can be paper or done by a computer)
What is a check?
Checks are pieces of paper that promise you will pay the amount written on that check
How do you make sure a check will clear or is good?
You must have enough money in your checking account to pay for every check you write or you will “bounce” the check. Which means you will not be able to cover what you promised.
What is a debit card?
a debit card looks like a credit card but works like a check
What is a ATM?
Automated teller machine
What does an ATM do?
ATM allows you to remove money from your account without you going into the bank.
What is a credit card?
a plastic card with an account number that lets you buy something now and pay for it later
How do you repay credit cards?
a person (the cardholder) receives a bill at the end of the month telling how much was spent *people charge over a trillion dollars each year*
What is a credit card bill?
a bill is a statement of what you bought and how much you owe
What is credit card interest?
If the entire amount (balance) is not paid you begin to pay interest on the balance (outstanding amount). You can be charged from 9 - 23% each month.
What is a balance?
Balance is the amount unpaid on your bill or it can also mean the money left in a bank account.
Credit card minimum payment is
2-4% of your balance
Example of a bank issued credit card:
VISA, MasterCard, Disover
Example of store issued credit cards:
Target card, Macy’s card, GAP card
VISA, MasterCard, Discover, & American Express charge what to stores?
a transaction fee (3%); a transaction fee is on every check out
What is a transaction?
When you purchase something.
